question 9

Magic Realm, Inc., has developed a new fantasy board game. The company sold 50,400 games last year at a selling price of $70 per game. Fixed expenses associated with the game total $924,000 per year, and variable expenses are $50 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor.

Required:

1-a. Prepare a contribution format income statement for the game last year.

1-b. Compute the degree of operating leverage.

2. Management is confident that the company can sell 62,496 games next year (an increase of 12,096 games, or 24%, over last year).

a. Compute the expected percentage increase in net operating income for next year.

b. Compute the expected total dollar net operating income for next year. (Do not prepare an income statement; use the degree of operating leverage to compute your answer.)

question 10

Outback Outfitters sells recreational equipment. One of the companys products, a small camp stove, sells for $90 per unit. Variable expenses are $63 per stove, and fixed expenses associated with the stove total $132,300 per month.

Required:

1. Compute the companys break-even point in unit sales and in dollar sales.

2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)

Higher break-even point

Lower break-even point

3. At present, the company is selling 20,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.

4. Refer to the data in (3) above. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $73,000 per month? (Round your answer to the nearest whole number.)

Magic Realm, Ina., has developed a new fantasy board game. The company 50,400 games last year at a selling price of $70 per game. Fixed expenses associated with the game total $924,000 per year, and variable expenses are $50 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Outback Outfitters sells recreational equipment. One of the company's products, a fixed expenses associated with the stove total $132,300 per month. Required: old 50,400 small camp stove, sells for $90 per unit. Variable expenses are $63 per stove, and 1. Compute the company's break-even point in unit sales and in dollar sales. Required: 1-a. Prepare a contribution format income statement for the game last year 2.f the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower broak-oven point? (Assume that the fixed expenses remain unchanged.) 1-b. Compute the degree of operating leverage. 3. At present, the company is selling 20,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. 2. Management is confident that the company can sell 62.496 games next year (an increase of 12,096 games, or 24%, over last year). a. Compute the expected percentage increase in net operating income for next year b. Compute the expected total dollar net operating income for next year. (Do not prepare an income statement; use the degree of operating leverage to compute your answer.) 4. Refer to the data in (3) above. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $73,000 per month? (Round your answer to the nearest whole number.) earences Book & Resources Financial siatenents Leaming Ojoci 03-04 Leaming ive 034